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Good Inauguration to You: Market Not in Celebratory Mood

NEW YORK (AP) — The dawn of the Obama presidency could not
shake Wall Street from its dejection over the banking industry’s
growing problems.

After hearing the new president’s inaugural address
Tuesday, investors continued selling, sending the major indexes
down more than 2 percent. Traders on the floor of the New York
Stock Exchange paused at times to watch the inauguration ceremony
and Obama’s remarks, but the transition of power didn’t erase
investors’

concerns about the struggling economy.

Obama said the economic recovery would be difficult and
that the nation must chose “hope over fear, unity of purpose over
conflict and discord” to overcome the worst economic crisis since
the Great Depression.

Investors are expecting Washington will be a central part
of the economic recovery. But the first few minutes of Obama’s term
did little to ease their concerns.

“At this stage, markets in general and bank investors
specifically are really looking to government as the way out,” said
Jack Ablin, chief investment officer at Harris Private Bank.
“Certainly, of just about all of inaugurations that I can recall
today’s event probably has the not only the symbolic importance but
really tangible importance to the stock market.”

Obama’s speech suggested Wall Street would see greater
oversight: “Without a watchful eye, the market can spin out of
control,” he said.

Investors already nervous about the state of U.S. banking
were rattled by the Royal Bank of Scotland’s forecast that its
losses for 2008 could top $41.3 billion, the biggest ever for a
British corporation. The British government injected more money
into the struggling bank Monday. The government also announced
another round of bailouts for the country’s banks.

The moves in Britain are designed to insure banks against
further losses and are similar to steps the U.S. government has
made to protect Citigroup Inc. and Bank of America. Both companies
on Friday reported multibillion dollar fourth-quarter losses.
Citigroup also said it planned to split its operations in two in an
effort to return to profitability.

Meanwhile, the Financial Times is reporting that Bank of
America will begin cutting as many as 4,000 jobs in its capital
markets unit as it consolidates its operations in that division
with those of recently acquired Merrill Lynch & Co.

Investors were uneasily awaiting the bulk of companies
earnings reports to see how badly industries beyond banking are
hurting.

“Today’s market is under pressure with fourth-quarter
earnings season (increasing this week) and it may not have been
effectively priced into the market yet,” said Arthur Hogan, chief
market analyst at Jefferies & Co.

State Street Corp., which had been performing better than
most financial services companies, reported a 71 percent drop in
fourth-quarter profit as it was forced to billions of dollars in
write-downs on its commercial paper program and investment
portfolio. The bank also said it expects 2009 operating earnings to
be flat with 2008, below the company’s long-term goal of 10 percent
to 15 percent growth. State Street plunged $17.18, or 47 percent,
to $19.16.

In midafternoon trading, the Dow Jones industrial average
fell 213.93, or 2.58 percent, to 8,067.29, its lowest level since
Nov. 21. The blue chips closed Nov. 20 at their lowest point in
more than five years.

During much of Obama’s address, the average was down about
150 points. The Dow generally declines on Inauguration Day. Traders
hadn’t appeared so focused on TV screens since Sept. 29, when the
House initially voted against the banking bailout package and the
Dow tumbled 777 points.

Declining issues outnumbered advancers by about 5 to 1 on
the New York Stock Exchange, where volume came to 849.1 million
shares.

Bond prices fell. The yield on the benchmark 10-year
Treasury note, which moves opposite its price, rose to 2.39 percent
from 2.34 percent late Friday. The yield on the three-month T-bill,
in demand because it is considered one of the safest investments,
rose to 0.12 percent from 0.11 percent late Friday.

Light, sweet crude rose $2.38 to $38.89 a barrel on the
New York Mercantile Exchange.

The dollar was mixed against other major currencies, while
gold prices rose.

Richard E. Cripps, chief market strategist for Stifel
Nicolaus, said the market’s decline was interrupted by Obama’s
inauguration speech but that the markets then continued to trade on
the problems in the financial sector.

“There’s just tremendous fear and uncertainty in the
banking sector,” Cripps said. “Even those closest to the issue,
like executives and analysts, there’s a feeling of tremendous
uncertainty. They’re not giving any positive guidance because they
just don’t know. Lacking that (certainty) we’re left to our worst
fears, and that’s what you’re looking at with bank
stocks.”

Johnson & Johnson reported a better-than-expected
fourth-quarter profit of 97 cents per share, but provided a 2009
outlook below analysts’ average expectations. Johnson & Johnson
said it expects to earn between $4.45 and $4.55 per share. Analysts
polled by Thomson Reuters, on average, forecast earnings of $4.61
per share for the year. J&J rose 1 cent to $57.45.

Italian automaker Fiat signed a nonbinding agreement to
form an alliance with struggling U.S. automaker Chrysler to share
technologies and vehicle platforms. Fiat will acquire a 35 percent
stake in Chrysler as part of the deal. Fiat will not invest cash,
but provide access to products and platforms.

One thought on “Good Inauguration to You: Market Not in Celebratory Mood”

There’s another “market” that bears watching–the news media reports about the severity of the current recession. Some are obviously “selling” the idea that this is the worst recession since the Great Depression of the 1930s. Others aren’t “buying it.”

Notice how the reporter, David Espo of the AP, claims in this paragraph that this is the “worst recession since the Great Depression”:

“The new president has pledged to take bold steps to revive the economy, which is struggling through the worst recession since the Great Depression. Last week, he won approval to use $350 billion in leftover financial industry bailout funds.”

Last September’s “credit freeze” probably was the worst “financial crisis” since the Great Depression. And, it certainly could have developed into the worst recession since the 1930s (and might still do it).

But it didn’t, and it hasn’t yet.

So, why would Espo make this specious claim? Does he think it lays the groundwork for something he favors, or has he just not noticed the many other reports which say–accurately–that this is not as severe as other post-WWII recessions?

I wonder if anyone will try to keep track as the reporting transforms the accurate statement about the “crisis” into “the worst recession since the Great Depression.” Maybe the bellwether will be the president himself: if he says one thing or the other, that will probably move this particular “market.”